Causes of vulnerability

The root causes of the mounting vulnerability of East Asian economies (the extent of which differed significantly among countries) were financial sector weaknesses and poor corporate governance, macroeconomic conditions and the policy response, and a lack of due diligence by external creditors. But the precise relationship between these problems and the crisis is complicated, because the crisis (and its severity) partly arose from the interaction among these factors. Furthermore, these problems were neither necessary nor sufficient for a crisis to occur. For example, financial sector weaknesses clearly contributed to the crisis, but many countries have weak financial sectors and do not experience a crisis. Moreover, stronger financial regulation may not have averted the crisis in East Asia, because incentives for unhedged corporate borrowing would still have existed. And the small size of these economies meant that they were not widely diversified—and thus were potentially more volatile—providing incentives during a period of uncertainty for capital flight to international currencies. Thus what follows should be seen as an initial presentation of the main reasons these economies developed the vulnerabilities that made a crisis possible. Further work is needed to analyze the contributions of each problem.

Financial sector weaknesses and poor corporate governance. Distorted incentives, inadequate disclosure and supervision, poorly managed financial liberalization, and lax regulatory standards resulted in weak financial sectors and poor corporate governance in many parts of the region. In many countries financial systems allow insider lending and close connections between lenders and borrowers. Implicit or explicit government guarantees have encouraged banks to take excessive risks (as the banks would receive high profits if projects were successful, and the government would absorb the losses if projects failed), further eroding incentives to evaluate credit and contributing to inflated prices of financial and physical assets (see Krugman 1998). For example, Korea’s chaebol may have been able to obtain loans from banks in part because of their direct shareholdings in and support for associated firms (and, until recently, through their influence on the government, which directed a portion of bank lending). Thus, despite their high debt to equity ratios—which for the 25 biggest averaged 4:1 in 1996—the chaebol obtained sufficient credit to finance continued expansion. And when the financial position of several chaebol deteriorated in 1997, the government provided funds to cover some of these losses.

The lack of transparent and timely balance sheet and other information in most East Asian economies led many banks to base credit decisions on the availability of collateral rather than on an analysis of cash flows. This practice was particularly problematic in Korea, where nontransparent systems of interrelated ownership within a chaebol made it difficult to judge the value of collateral offered as security for loans. Overreliance on collateral skewed lending toward real estate and construction (where the property or building can serve as collateral), and the use of equities for collateral increased the vulnerability of banking portfolios to a downturn in the stock market.

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Distorted incentives and low transparency affected corporates as well. Many major companies in East Asia are closely held, and despite recent improvements in disclosure and other requirements there is inadequate protection for minority shareholders. (For example, a recent scandal in Malaysia demonstrated that shareholders lack sufficient recourse in the event of malfeasance.) In Korea and Indonesia profitable units of industrial groups subsidized money-losing units with favorable transfer pricing and implicit and explicit debt guarantees. While the extensive system of cross-guarantees was developed to serve a market need and worked well for many years, it made it difficult for outsiders (like minority shareholders or the market in general) to ensure appropriate accounting for and allocation of losses. Poor corporate governance was also evident in the lack of impartial audit committees and of independent directors in many companies. Although East Asian equity markets grew quickly, limited transparency made it hard for them to impose discipline on corporate behavior. The largest corporates (for example, some of the chaebol) may also have been viewed as “too big to fail,” thus encouraging excessive risk taking.

Financial sector supervision in East Asia generally has been weak, and regulations relatively lax. Countries lacked the institutional capacity to cope with the rapid expansion of domestic credit during the 1990s. Reporting and provisioning requirements for nonperforming loans were inadequate in several countries. (In Indonesia, for example, a loan can be nonperforming for 24 months or more before it is deemed uncollectable.) In several East Asian countries capital adequacy requirements are more lenient than those suggested by the Bank for International Settlements (BIS) even though these economies face higher risks than the industrial countries that follow BIS standards. Finally, many countries lacked effective exit mechanisms for failed institutions, so insolvent banks (which have little incentive to behave prudently, since they have no equity to lose) were allowed to continue lending.

These problems were exacerbated by the rapid liberalization of financial markets without a commensurate strengthening of supervision and regulation. In the late 1980s and early 1990s the Thai government reduced reserve requirements, eased the rules governing nonbank financial institutions, and expanded the scope of permissible capital market activities (allowing banks to finance equity purchases on the margin, for example). Deregulation of the Korean financial sector, introduced in 1993 (partly under pressure from Western governments), eliminated many interest rate controls, removed restrictions on corporate debt financing and cross-border flows, and allowed increased competition in financial services.

Liberalization in the absence of adequate regulation or supervision greatly increased the vulnerability of financial systems. Opening banking systems to new entrants lowered the franchise value of existing banks. Lax enforcement, implicit government guarantees, and inadequate minimum capital requirements encouraged risk taking. And increased access to offshore funding made it easier for banks to take on excessive foreign exchange risk. The liberalization of financial markets at a time of easy global monetary conditions encouraged a surge in borrowing, and domestic credit jumped in Southeast Asia (table 2.5). For example, in 1996 domestic credit rose to 130 percent of GDP in Thailand (compared with ratios of 22 to 73 percent in Latin America), further increasing the economy’s vulnerability to shocks to the banking system.

Table 2.5 Credit growth in various countries, 1990–96 (percent)

Note: Loans include nonbank financial intermediaries.
a. Does not include nonbank financial intermediaries in 1990 and 1996 for Indonesia and in 1995 for Malaysia.
b. Data are for 1990–95.
c. 1995.
Source: World Bank 1997c; IMF International Financial Statistics, and Goldman Sachs.

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Macroeconomic conditions and the policy response during 1994–96. Regional vulnerability also increased as a result of the incentives for borrowing created by macroeconomic policies—particularly exchange rate regimes. This inclination to borrow was reinforced by liquid international markets. In most East Asian countries exchange rates were tied to a basket of currencies in which the dollar had a large weight. In Thailand, for instance, the exchange rate ranged from 25 to 27 baht to the dollar between 1984 (when the currency regime was adopted) and June 1997. This stability inspired confidence that the exchange rate would continue to hold in the future. When combined with liquid capital markets and low international interest rates, exchange rate regimes created strong incentives for unhedged borrowing from abroad.

During 1994–96 Indonesia, Malaysia, and Thailand saw a widening of their current account deficits (driven primarily by an increase in imports) and a counterpart surge of inflows on their capital accounts, accompanied by an increase in asset prices in some sectors. By early 1997 these pressures had abated. Inflation increased slightly in Indonesia in 1995, from 8.5 percent to 9.3 percent, but by 1996 it was down to 8.0 percent (table 2.6). In Malaysia inflation jumped from 3.5 percent in 1994 to 6.0 percent in 1995, but by 1996 it was back to 3.6 percent. Although inflation in Thailand increased to 5.9 percent in 1996 (from 5.0 percent in 1995), it remained moderate by international standards (although above the U.S. rate when the baht was closely tied to the dollar).

In all three countries capital inflows generated strong upward pressures on domestic demand and the exchange rate. Given the size of the capital inflows, the healthy state of public finances, and the small size of governments, it was impractical to entirely offset the rise in demand through a fiscal contraction, although these countries did run fiscal surpluses in 1996 (of 2.3 percent of GDP in Thailand). Thus, as current account deficits rose, the authorities turned to monetary policy to restrain the increase in demand. Indonesia and Thailand offset a significant proportion of the increase in capital inflows through a contraction in domestic credit—that is, they relied on sterilized intervention.

Although sterilization reduced demand below the level that would otherwise have occurred, it proved to be a double-edged sword. For example, in 1996 short-term money market interest rates in Thailand were 400 basis points higher than comparable U.S. rates, encouraging short-term, unhedged borrowing. By preventing interest rates from falling in response to capital inflows, sterilization also encouraged creditors to continue lending. Finally, sterilization was reflected in large accumulations of reserves. Between 1994 and 1996 international reserves in Indonesia, Malaysia, the Philippines, and Thailand increased by about $30 billion (about one-fifth of net private capital flows). Holding such large reserves imposes substantial costs on the economy, especially in developing countries, because the return on liquid reserves is typically far lower than the cost of attracting capital from abroad.

The major swing in the dollar-yen exchange rate contributed to the appreciation of East Asian currencies. A shift in fiscal policy in Japan—a major trading partner for East Asian developing countries—equal to about 2 percent of GDP, coupled with monetary easing, led to a decline in yen long-term interest rates (which reached 1.1 percent by October 1997) and a 50 percent appreciation of the dollar against the yen between April 1995 and July 1997.

In addition, structural reforms in China have improved its international competitiveness in recent years, resulting in large increases in China’s share of export markets, perhaps at the expense of some East Asian economies. The extent to which the end-1994 unification of the Chinese yuan affected this process is open to question, as about 80 percent of foreign exchange transactions were already being carried out at the swap market rate. There does not appear to have been any marked change in the trend improvement in China’s share of trade after the unification.

Lack of due diligence by external creditors and poor external intermediation. East Asia’s problems were not limited to or entirely caused by inadequate financial regulation or bad choices by borrowers. Lenders also bear much of the responsibility. These loans came from countries with seemingly well-regulated and transparent financial institutions operated by sophisticated managers without government intervention. Yet foreign lenders and investors were not restrained by inadequate financial statements, high short-term debt, or the unhedged foreign exchange exposure present in the financing structure of East Asian banks and firms. In Thailand international banks were willing to funnel short-term loans denominated in foreign currency through offshore banking facilities in return for the opportunity to establish domestic operations.

Foreign lending continued despite the improvements in the collection and dissemination of information on emerging markets that followed the Mexican peso crisis. Indicators such as fiscal deficits and capital flows were being reported regularly. As in Mexico, there seems to have been sufficient publicly available data in Thailand to allow observers to foresee problems at least a year before the devaluation of the baht. Yet few appreciated the depth of the structural weaknesses in East Asian economies. In any event, rating agencies and international institutions failed to adequately assess the region’s economic vulnerabilities.

Loss of investor confidence: triggering factors and the emergence of crisis and contagion

Although increased vulnerability did not necessarily mean that a crisis would erupt, it did make a loss in investor confidence more likely. That markets and market observers failed to anticipate the scope and severity of the crisis is strong evidence that a self-fulfilling loss of confidence played an important role. The foreign currency debt of most East Asian countries had the same investment grade ratings in June 1997 as a year earlier, and rating downgrades occurred only once the crisis was in full swing (table 2.7). Just a few months before the crisis the government of Thailand was able to borrow in the eurobond market at a spread of only 90 basis points over U.S. Treasury bills. In considering the effects investor confidence had on the crisis, it is useful to distinguish between early events in Southeast Asia and the spread of the crisis to other regions in October and November.

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Table 2.7 Credit ratings for East Asian countries, 1996–97

Source: Standard & Poors and Moody’s.

The crisis in Southeast Asia. The crisis was triggered by events in Thailand during the first half of 1997, when exports remained flat (in dollar terms), capital flows slowed (bond issues and syndicated loan commitments fell to $4.0 billion from almost $6.5 billion in the first half of 1996), and the stock market dropped 34 percent (as the price of companies caught up in the burst real estate bubble dropped by nearly two-thirds). Confidence was further eroded by the eurobond default of Somprasong Land (a Thai property company), liquidity support to failing financial institutions (some $16 billion had been channeled to nonbank financial institutions by July 1997), and the provision of guarantees to the depositors and creditors of banks and finance companies in the face of continued pressures on the baht.

The rapid spread of the crisis to Indonesia, Malaysia, and the Philippines was due to aspects of their economies that were similar to those of Thailand’s. While intraregional trade among the four countries accounts for only 6 percent of their total trade, they are close competitors in world markets (and also compete intensely for foreign investment). Thus currency devaluation in Thailand created expectations of a fall in the others. Market participants (including domestic corporates) reassessed the sustainability of exchange rate policies once it had been demonstrated that continued close ties to the dollar were not guaranteed. And concerns about the sustainability of exchange rates dramatically increased the perceived riskiness of the currency and maturity mismatches built up during the 1992–96 surge in capital inflows. Foreign investors also may have perceived that loans to banks carried an implicit government or central bank guarantee. When this proved not to be the case in Thailand, risks and asset prices were reassessed. Despite their differences (for example, the Philippines had a smaller burden of short-term debt and less overbuilding in real estate than Thailand), the market treated these economies similarly—indicating that the market failed to discriminate adequately among them or that their role as competitors was crucial to evaluating the sustainability of exchange rate regimes.

The severity of the crisis, which far exceeded effects resulting from the misalignment of exchange rates, developed because the weaknesses of corporates and financial intermediaries encouraged a self-fulfilling loss of confidence. For example, the large volume of short-term debt falling due in Indonesia, Korea, and Thailand increased pressures on their currencies, as the turmoil in financial markets made creditors reluctant to roll over credit lines. The resulting currency depreciation increased the local currency value of uncovered dollar liabilities of banks, finance companies, and corporates, impairing balance sheets, lowering stock prices, and increasing demand for foreign exchange to cover open positions. Increased demand for foreign exchange led to further currency depreciation, and so on.

The economic contraction further eroded confidence. The increases in interest rates made to defend the currency and the rapid fall in the equity of highly leveraged financial institutions (due to their and their borrowers’ losses from currency mismatches and the decline in real estate and share prices) led to a credit contraction that impaired the position of otherwise healthy firms and increased foreign lenders’ reluctance to roll over short-term debt. And because investors had limited information about these economies, market perceptions were likely to change rapidly once the crisis began, exacerbating the decline in prices.

The crisis was also exacerbated by a faltering policy response and more generally by political uncertainties. Thailand’s government did not move fast enough to deal with insolvent financial institutions, and market confidence also suffered when it was revealed that losses on forward foreign exchange transactions to defend the baht were much higher than initially believed. In Malaysia government statements caused concern about the possible imposition of capital controls, encouraging further capital outflows. In Indonesia uncertainty about government commitment to financial sector restructuring appears to have impeded recovery. In some countries political transition created uncertainties over likely government responses to the crisis. Potential increases in unemployment also raised the specter of social unrest in some countries, contributing to the downward spiral.

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The spread of the crisis. Confidence factors also may help explain the spread of the crisis in October, as there was little new information to justify global declines in stock markets. The drop in stocks reflected a flight to quality, as evidenced by the 35 basis point drop in long-term U.S. Treasury bill yields between October 22 and 27. Large financial losses reduced investor appetite for risk, resulting in an exaggerated response to the sudden drop in Hong Kong’s stock market. And the spread of the crisis began to lower expectations of global demand, reducing earnings projections and stock market valuations.

Given the large gaps in information about and familiarity with emerging markets, financial shocks can spread extremely rapidly among borrowers of varying quality, resulting in severe overshooting. The advent of speculative attacks against the currencies of Singapore and Taiwan, China, which have strong economic fundamentals, massive reserves ($80 billion and $90 billion in mid-1997), and current account surpluses (estimated at $19 billion and $10 billion in 1997), also suggest the importance of confidence factors in the spread of the crisis.

Market concerns about emerging markets, combined with economic vulnerabilities, caused investors to lose confidence in Korea. Short-term debt had increased from $18 billion in 1993 to more than $100 billion in September 1997. The current account deficit had increased from 1 percent of GDP in 1991–95 to 5 percent in 1996. The terms of trade had dropped 15 percent in 1996 with the falling prices of computer chips and the appreciation of the dollar against the yen. GDP growth had slowed from 9 percent a year in 1994–95 to 7 percent in 1996, and debt servicing by the highly leveraged chaebol depended on rapid growth. Starting with the January 1997 collapse of Hanbo Iron and Steel, Korea’s fourteenth largest conglomerate, 8 of the 30 largest chaebol received court protection from creditors. Market confidence was further impaired by the national assembly’s failure to provide government guarantees for the debts of the chaebol. 4/

The onset of the economic crisis in Korea in November appears to have been triggered by the general collapse in confidence in emerging markets in the context of mounting short-term debt. Korea’s macroeconomic environment had actually improved somewhat during the first three quarters of 1997. Export growth had started to pick up, with export revenues averaging about $1 billion a month more than the average for 1996. GDP growth was 6 percent, inflation was 4 percent, the current account deficit had narrowed, and the budget was in surplus.

Mounting bankruptcies, exchange rate pressures, and concerns about the liquidity support that could be required for corporates and banks led Standard & Poor’s to downgrade Korea’s long-term foreign currency debt rating in late November. Creditor uncertainty about the extent of financial sector problems made it difficult to roll over short-term credit lines. The stock market fell 19 percent in November (and by the end of December was down 51 percent since July), the won depreciated 20 percent in November (down 80 percent from July to December), and international reserves dropped below $10 billion. These difficulties led the Korean authorities to ask the International Monetary Fund (IMF) for financial assistance to help meet foreign exchange obligations and restore investor confidence, and to ask commercial banks for a negotiated refinancing of a sizable portion of short-term debt obligations.

Korea’s crisis worsened in December because of concerns over the policy response. The sharp jump in estimated short-term debt following the announcement of the IMF program increased market worries about the severity of the refinancing problem. Uncertainty over the economic policies that would follow the December presidential election also undermined confidence. In early January, however, the exchange rate stabilized, the incoming administration reiterated its support for the IMF agreement, and the government moved quickly to implement economic reforms. The national assembly passed legislation that gives the Bank of Korea more autonomy over monetary policy, unifies regulation of the financial sector, and mandates consolidated financial reporting that will improve transparency. In addition, the ceiling on foreign ownership of stocks was eliminated, and the limit on individual ownership of banks will be lifted for all investors.

Ramifications of the crisis beyond East Asia. Most Latin American economies were not greatly affected by spillover effects from the devaluation of Southeast Asian currencies in July and August, although the Brazilian market dropped 20 percent in July. The stock market turbulence in October did more damage: between October 22 and 27 stock markets in Argentina, Brazil, and Mexico fell 20–24 percent, and some countries experienced exchange rate pressures (the Mexican peso depreciated 9 percent by October 27). By mid-November three-month interest rates had increased by 2,300 basis points in Brazil, 600 basis points in Mexico, and 500 basis points in Argentina. In addition, secondary market spreads on the debt of Brazil and Argentina rose by some 200 basis points and of Mexico by 100 basis points. By the end of the year, however, Argentina and Brazil had maintained their exchange rate regimes and the Mexican peso had recovered to within 4 percent of its October 22 level. Although stock markets remained below October levels, for the year as a whole stock prices in the seven largest Latin American economies rose by an average of 21 percent (in dollar terms).

A number of factors explain the ability of Latin American countries to weather the storm. In recent years a few countries in the region have come to depend more than the most affected countries in East Asia on foreign direct investment to finance current account deficits, and foreign direct investment tends to be more stable than debt flows and portfolio equity. Though much remains to be done, countries in Latin America have been strengthening their financial systems, particularly since the 1994–95 Mexican peso crisis. Efforts have been made to improve prudential regulation and banking supervision. Weak institutions have been closed or absorbed by stronger institutions. Public banks have been privatized. And restrictions on foreign participation in the financial sector have been eased. In recent years Latin American countries have not experienced lending booms comparable to those in East Asia, and domestic credit accounts for a smaller share of GDP than in East Asia (see table 2.5). Moreover, currency and maturity mismatches are probably less of a problem in Latin America, where a history of high inflation and large exchange rate fluctuations has made lenders and borrowers familiar with and adverse to the risks of unhedged exposure. Still, many Latin American economies continue to harbor significant financial sector weaknesses.

Another factor in Latin America’s favor was the swift policy response by the authorities, particularly in Brazil. Brazil was perceived as vulnerable because of its high fiscal deficit (rather than high private capital inflows, as in East Asia), growing external account deficit, and inflexible exchange rate regime. To protect the economy, the government doubled overnight nominal interest rates to more than 40 percent and introduced emergency fiscal measures projected to yield about 2.5 percent of GDP. The measures, with some amendments but the same aggregate impact, were approved by Congress in mid-December.

Argentina also was considered vulnerable because of its exchange rate system (a currency board) and its close commercial ties to Brazil. At first, interest rates increased markedly. But unlike after the Mexico crisis, there was no significant outflow of international reserves, bank deposits continued to grow (although with increased signs of dollarization), and interest rates subsequently declined. Argentina regained access to the dollar bond market by early December. Latin American countries with more flexible exchange rate regimes—Chile, Colombia, Mexico, Peru—absorbed the external shocks by depreciating their currencies and increasing interest rates. Policies discouraging short-term external borrowing also may have helped Chile and Colombia avoid many of the problems plaguing East Asia (box 2.3).

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Although Latin America managed to avoid sharp currency devaluations and experienced a recovery in stock prices and secondary market spreads, the region has not been untouched by the turmoil in Asia’s financial markets. Secondary market spreads on external debt instruments remain high in several countries. For example, spreads on sovereign bond issues in Argentina and Brazil exceeded 300 basis points at the end of December 1997, more than 100 basis points above September levels. And prospects for near-term growth in the region have been revised downward in view of the increased uncertainty, fiscal contraction, higher interest rates, more difficult access to foreign financing, deterioration in terms of trade, and increased competitiveness of East Asian economies. The World Bank anticipates that GDP in Latin America will rise by 2.7 percent in 1998; before the crisis growth was expected to reach 3.7 percent. The greatest drop will occur in Brazil, which has had the strongest policy response to the crisis. Brazil’s GDP is expected to increase only marginally in 1998, compared with a mid-1997 forecast of 3 percent. At the time of writing, the impact of contractionary policies on output in Brazil were just beginning to be seen in the data. The industrial federation reported a fall in sales of 9.4 percent in November, about half of which may have been due to seasonal factors (J.P. Morgan).

Markets in Europe and Central Asia also suffered from the turmoil that roiled global stock markets in October 1997. While exchange rates in the region emerged relatively unscathed (except for the depreciation in Turkey later in the year), Russia’s stock market dropped 12 percent between October 22 and 27, Turkey’s fell 9 percent, and Poland’s lost 7 percent. By the end of the year Russia’s interest rates had reached 42 percent and Ukraine’s 45 percent. Unlike in Latin America, the decline in many of the region’s stock markets continued, and by the end of December the market in Russia had fallen by 26 percent, in Poland by 18 percent, and in Turkey by 12 percent relative to October. Still, stock markets remained well above levels at the beginning of the year (on 31 December Russia’s market was 125 percent higher than on 1 January).

The effects the crisis had on Eastern Europe may reflect the emergence of vulnerabilities similar to those in East Asia. Large current account deficits have emerged—notably in the Baltics, Romania, and the Czech and Slovak republics—and are being financed largely by private capital inflows. Short-term borrowing has increased rapidly in some countries, although the stock of short-term debt remains low (accounting for just 26 percent of reserves and less than 10 percent of debt in Russia, for example). The share of private capital inflows being intermediated by the financial sector is also increasing rapidly. And some countries in the region share weaknesses with East Asia—in particular, fragile financial systems, low transparency, and poor corporate governance.

Moreover, in contrast to East Asia, public sector deficits are large in Russia, Turkey, and Ukraine, and all three countries rely on private foreign funding at short maturities. Although real exchange rates appreciated 34 percent in Russia and 17 percent in Poland during 1994–96, these rates were significantly undervalued in the early years of the transition from socialism. Exports from the region have been growing strongly (partly because of increases in the prices of commodity exports), and an asset price boom in nontradables similar to East Asia’s in real estate has generally been absent. Thus there is little evidence that exchange rates are misaligned.

The East Asian crisis had a relatively modest impact on South Asia. After a brief speculative attack on the Indian rupee, the currency depreciated 10 percent between late October and mid-December, and the stock market fell 15 percent. By the end of the year, however, the exchange rate and stock market had recovered somewhat. Otherwise, the contagion effects of the crisis were limited in South Asia, possibly because current account deficits are smaller and capital accounts are more heavily regulated than in East Asia (although financial systems in the region share many of the weaknesses that affect East Asia). The crisis erupted at a time when foreign exchange reserves were relatively comfortable (except in Pakistan), particularly in India (twice the stock of short-term debt and the stock of portfolio investment). South Asian currencies were experiencing only a modest real appreciation and, except for Pakistan, only small current account deficits. Private capital flows to India had remained moderate—about 1.5 percent of GDP during 1994–96.

Although reforms are under way to liberalize and strengthen overregulated banking systems in India (and a banking sector reform program is under way in Pakistan), liberalization is being accompanied by a tightening of prudential regulations and higher real interest rates. As a result it has caused only a modest expansion in credit. Capital controls are being relaxed in India (in particular, Indian authorities have raised ceilings on medium- and long-term external commercial borrowing), but restrictions on banks’ and corporations’ short-term borrowing have been maintained. As a result Indian banks’ short-term external debt has remained small, as has the private sector’s uncovered foreign exchange position. In general, South Asia has not experienced the rapid credit expansion and currency and maturity mismatches that contributed to the crisis in East Asia.

Most countries in the Middle East and North Africa and Sub-Saharan Africa were untouched by the crisis. The main reasons were the limited private capital flowing to these regions (the $22 billion in net long-term private flows to the two regions in 1997 was only 9 percent of the developing country total and 2 percent of their GDP) and, with some exceptions, their relatively undeveloped stock markets.

Continue with East Asia’s financial crisis: causes, evolution, and prospects

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